As we move further through this credit cycle, a constant theme for banks is the fallout from overbuilding during the real estate boom -- and some of Georgia's financial institutions appear to be in bad shape.
We recently discussed loan quality problems at the
nation's largest construction lenders, following an earlier discussion of
Florida's most troubled banks.
A close look at Georgia's 358 banks and thrifts shows that for many, the home construction lending bust is even worse than it is in Florida. Here's a list of the 10 Georgia banks and S&Ls with the worst asset quality, as of March 31:
The four institutions in bold were considered below well-capitalized per regulatory guidelines, with leverage ratios below 5% and/or risk-based capital ratios below 10%. These four would be termed adequately-capitalized per regulatory guidelines, but when it comes to banks with high levels of problem loans, "adequate" translates to "pretty darn scary."
Integrity Bank had the worst asset quality on the list, along with the weakest capital ratios. It's also the largest institution in our "top 10," with total assets of $1.2 billion as of March 31. The bank is held by
Integrity Bancshares, Inc.(ITYC Quote - Cramer on ITYC - Stock Picks), which has been trading on the Pink Sheets since being voluntarily delisted from the
Nasdaq in late March.
One of the reasons the holding company delisted was a number of resignations from its board of directors, making it impossible to meet the Nasdaq requirement that the majority of directors qualify as "independent." Also, the stock was selling below $1 per share.
On March 5, Integrity announced that it agreed to the FDIC's issuance of a cease & desist order, which addressed the bank's poor loan quality, inadequate reserves and poor board of directors oversight. The holding company has also entered an agreement with the
Federal Reserve not to receive any dividends from the bank or to pay out any dividends to shareholders or any interest on trust preferred securities.
Integrity's problem was its breakneck increase in construction lending through June 2007. At that time the construction loan portfolio had grown 37% over the previous year, and comprised 63% of the bank's total assets. June 2007 is also the quarter when the bubble burst, with Integrity taking a quarterly loss of $31 million as it elevated provisions for loan loss reserves.
Integrity reported net charge-offs of $48.5 million over the past four quarters, as loan quality deteriorated. Nonperforming assets comprised a whopping 22.62% of total assets as of March 31. With loan-loss reserves covering just 16% of nonperformers and a low overall level of capital, the bank is clearly in danger of being closed down by regulators. The situation is really grim when you consider that loans delinquent 30-89 days (still considered "performing") comprised another 9.56% of total assets as of March 31.
A call to Integrity Bank for comments on raising capital or other strategic plans was not returned.
Community Bank of Loganville was also considered adequately capitalized, with a risk-based capital ratio of 9.72%. Once again, the big culprit was construction lending. Nonperforming assets, including nonperforming loans and repossessed real estate, comprised 20.12% of total assets as of March 31. Loan loss reserves covered less than 12% of nonperforming loans.
Philip van Doorn
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